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How to Choose Between 0% Financing and Cash Back

Sometimes you'll run into a situation where you have to choose between 0%/low APR financing or a cash back rebate. So how do you decide between the two?

First of all, in order to qualify for a low APR offer, you generally have to have great credit. If you don't, then it's an easy choice: take the cash rebate!

If you're one of the lucky ones with solid credit, you can arrange your own financing for between 5% and 8% in today's market (as of 2024). What you need to do is figure out the difference in interest rates between the low APR offer and what you can arrange on your own.

If you can arrange financing at 4% interest on your own, then a low APR offer doesn't really look that great, especially if it's not 0% financing. To give you a very general idea of what a cash rebate is worth in relation to comparable interest rates, I've done the calculations on a loan of $25,000.

As you can see, a $1,000 cash rebate is equivalent to a 2% difference in interest rates over a 48 month loan and 1.5% over a 60 month loan.

Cash Rebate 48 mo 60 mo
$1,000 2% 1.5%
$1,500 3% 2.2%
$2,000 4% 3.2%
$2,500 5% 4%
$3,000 6% 5%

Use the following calcuator to determine exactly which offer makes better sense for your particular situation. You'll need to first check your credit score to see what kind of rates you could qualify for in order to figure out the "current interest rate".

Cash Rebate vs. Low APR Calculator

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About The Author

Gregg Fidan Gregg Fidan is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.
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